Bank Supervision and bank’s Outcomes: The Case of Tunisia

Supervision is important for the entire financial system since it plays the role of a stabilizer; it seeks to create a healthy environment for financial institutions, and in particular for banks. Bank supervision is considerably more challenging than that of other institutions because of the opacity and complexity of bank assets. We explore the impact of supervision on the risk, profitability, and growth of Tunisian banks. The empirical study focused on 210 annual reports of almost all Tunisian banks during the 2010–2019 period. Banking supervision effectiveness is measured by enforcement outputs (i.e. on-site audits and sanctions). The generalized least squares method of multivariate analysis was used to analyze our panel data.The results show that supervisory and regulatory measures applied during this period have a negative impact on bank risk and profitability. This means that stricter banking regulation and supervision reduce both the risk and profitability of banks. Our results also show that intense supervision reduces the growth of loans for Tunisian banks. Our results have important implications for the decision-making of bank managers and regulators in Tunisia as well as for relevant actors in similar emerging economies. Strengthening further banking supervision policy is still needed by the central bank of Tunisia, i.e. the bank regulator.